A betting exchange is a website allowing ordinary gamblers to bet against each other.
The fundamental difference with a bookmaker is that on a betting exchange, punters also have the option to lay a bet rather that just back a bet.
Backing a bet means you are betting on an outcome of an event to happen, whilst laying a bet means you are betting against an outcome of an event to happen or in other words, if you lay a bet, you are betting on something to lose, effectively assuming the role traditionally performed by the bookmaker.
Betting exchanges provide a platform and the technology for gamblers to bet against each other. In doing so, unlike bookmakers they don’t assume any risk and will generate revenues by charging commissions on transactions and winnings, whilst bookmakers make money from betting margins.
Exchanges vs Traditional Bookmakers
Another difference with traditional bookmakers is that the prices/odds on a betting exchange are determined by the free market, rather than being set by the bookmaker odds compilers.